(CITE AS: 71 B.R. 953)
In re John P. GALANIS, Debtor.
Arthur J. GERSTL, Interim Trustee, Plaintiff,
v.
John P. GALANIS; Milton I. Schwartz; Misco, Inc.;
Armstrong Capital, S.A.; and Dayton Company, Inc.,
Defendants.
ARMSTRONG CAPITAL, S.A., Plaintiff,
v.
FEINER, CURTIS, SMITH AND GOLDMAN, et al., Defendants.
Bankruptcy No. 5-80-00302.
Adv. Nos. 5-85-0024, 5-85-0025.
Civ. Nos. B-85-40(EBB), B-79-43(TFGD).
United States Bankruptcy Court, D. Connecticut.
April 2, 1987.
Paul R. Grand, Diana Parker, Grand & Ostrow, New York City,
for John P. Galanis.
William A. Phillips, More, Phillips & Hull, P.C., Greenwich, Conn.,
JOHN C. KLOTZ, New York City, for Armstrong Capital, S.A.
MEMORANDUM OF DECISION
ALAN H.W. SHIFF, Bankruptcy Judge.
1.
BACKGROUND
A.
The matter before the court is an interpleader action to deter
mine the competing claims of John Peter Galanis ("Galanis"),
Armstrong Capital, S.A. ("Armstrong"), Milton I. Schwartz and
Misco, Inc. (Schwartz/Misco"), and the Dayton Company ("Dayton")
to property held by the plaintiff upon dismissal of an involun
tary Chapter 7 petition which had been filed in this court
against Galanis by Chase Manhattan Bank, N.A. on May 1, 1980. The
plaintiff, Arthur Gerstl, was appointed interim trustee ("trus
tee") in that bankruptcy case, and in that capacity, on October
1, 1980, instituted an adversary proceeding against
Schwartz/Misco [FN1] to recover property allegedly belonging to
Galanis's estate from the sale of Park City C.A.T.V. Associates,
a Utah limited partnership, in which Galanis was the sole general
partner. On April 28, 1981, Bankruptcy Judge Robert L. Krechevsky
[FN2] entered an order that the estate was entitled to a fifty
per cent interest in the net proceeds of the sale beyond the
defendants' recovery of their capital outlay.
The defendants appealed and the plaintiff cross-appealed Judge
Krechevsky's decision. Thereafter, the parties entered into a
settlement, and on August 26, 1982, this court entered a stipu
lated order for judgment pursuant to which Schwartz/Misco and
Park City C.A.T.V. Associates paid the trustee $240,000.00 plus
interest from December 1, 1981 (the "settlement fund"), which
represents a substantial portion of the interpleader fund at
issue here. Under the terms of that order, the settlement fund
was subject to a $170,000.00 lien in favor of Schwartz/Misco as
security for their unliquidated claims alleged against Galanis,
which amount was to be remitted to them in the event the involun
tary petition against Galanis was dismissed. The stipulated order
further provided that if such dismissal occurred, nothing con
tained in this settlement order shall be construed as a waiver of
the rights of John P. Galanis, outside of bankruptcy, to pursue
Milton I. Schwartz and Misco, Inc. to recover in his favor
against said parties, to the extent of the lesser of the amount
of his proveable [sic] claim outside of bankruptcy or the remain
ing settlement fund paid by the Trustee to Milton I. Schwartz and
Misco, Inc., pursuant hereto.
On November 9, 1984, this court granted Galanis's motion for
dismissal of the involuntary petition for failure to prosecute,
pursuant to Code '303(j)(3), [FN3] and ordered that, following
court approval of the final accounting and applications for
professional and other fees, "the balance of all assets of this
estate [exclusive of Schwartz/Misco's interest established under
the August 26, 1982 order] shall be paid to and revest in the
debtor." [FN4] However, prior to any distribution to Galanis or
Schwartz/Misco, two claims were made against those assets.
First, on December 18, 1984, Armstrong caused an execution,
issued by the United States District Court for the District of
Connecticut, to be personally served on the trustee [FN5] in an
attempt to levy upon Galanis's personal property to satisfy a
$510,579.00 judgment entered in its favor against Galanis on June
10, 1976 by the United States District Court for the Southern
District of New York, Armstrong Capital, S.A. v. Feiner, Curtis,
Smith and Goldman, et al, Index No. 74 Civ. 3154 (the "Feiner"
action). Armstrong had docketed that judgment in the United
States District Court for this District on June 18, 1979
(Misc.Civ. B-79-43). [FN6] The trustee did not surrender the
funds in his possession, but acting in compliance with Connecti
cut Public Act No. 83-581, Sec. 9(a)(4)(C) [FN7], initiated the
procedures required to give notice to Galanis that an execution
had been served on him.
Second, on or about December 21, 1984, the trustee was served
with an ex parte order issued in favor of Galanis by the Connec
ticut Superior Court, Judicial District of Stamford/Norwalk to
garnish $170,000.00 in the trustee's possession. That order was
obtained in connection with a breach of contract action Galanis
instituted against Schwartz/Misco based on the rights he retained
under the August 26, 1982 stipulated order to recover the pro
ceeds of the sale of Park City C.A.T.V. Associates as determined
by Judge Krechevsky. On December 20, 1984, Dayton appeared at the
final meeting of this bankruptcy case and claimed that it had not
received notice of the November 9, 1984 order of dismissal.
Dayton further asserted that its right to estate assets was
superior to Galanis and Armstrong, and to Schwartz/Misco in the
event that Galanis succeeded in his breach of contract action. On
December 27, 1984, this court entered an order requiring the
trustee to retain the funds remaining after payment of approved
professional fees, "pending an Order for Distribution by the
Bankruptcy Court." On January 16, 1985, Armstrong applied to the
United States District Court for the District of Connecticut for
an Ex Parte Order in Aid of Execution pursuant to Connecticut
Public Act 83-581 Section 10. [FN8] On January 18, 1985, as a
consequence of the conflicting claims of 1) Schwartz/Misco (for
$170,000.00 based on the August 26, 1982 stipulated order); 2)
Galanis, (based on the November 9, 1984 bankruptcy court order
dismissing the petition and the state court garnishment); and 3)
Armstrong, (based on the service of the execution of the Feiner
judgment upon Galanis and the trustee), the trustee filed an
interpleader action, pursuant to 28 U.S.C. '1335, in the United
States District Court for the District of Connecticut, Gerstl v.
Galanis, et al, Civ. No. B-85-40, which was referred to Judge
Burns. At that time the trustee held approximately $255,000.00
(the "interpleader fund"), of which $35,000.00 is attributable to
sources other than the settlement fund.
On January 21, 1985, Chief Judge Daly ordered the trustee to turn
over all funds to the sheriff, except the portion disputed by
Galanis and Schwartz/Misco. On that same date, acting pursuant to
28 U.S.C. ss 1332, 1441, and 1446, Schwartz/Misco removed the
breach of contract action to the District Court, Galanis v.
Schwartz, Civ. No. B-85-46 (TFGD). On February 1, 1985, Dayton
filed motions to intervene in the interpleader action and the
ancillary Feiner proceeding. In addition, Dayton sought to vacate
the ex parte order issued by Chief Judge Daly in that Feiner
matter. [FN9]
On February 7, 1985, Armstrong filed a Motion For And Consent To
Reference in the ancillary Feiner matter and the interpleader
action pending before Chief Judge Daly and Judge Burns respec
tively, requesting that this judge adjudicate these matters
pursuant to F.R.Civ.P. 53. Armstrong's motions were granted on
February 15, 1985. In addition, upon motion by Schwartz/Misco,
Galanis's breach of contract action was referred to this judge by
Chief Judge Daly, pursuant to 28 U.S.C. '157(c)(2), to be decided
in conjunction with the interpleader and Feiner proceedings. On
February 19, 1985, Dayton's motion to intervene and to vacate the
ex parte order in the Feiner ancillary proceeding was also re
ferred to this judge by Chief Judge Daly for review and determi
nation. The referral included the authority to vacate the ex
parte order. On March 12, 1985, Chief Judge Daly clarified the
February 15, 1985 ruling to reflect that reference to the bank
ruptcy judge had been made with the consent of the parties pursu
ant to 28 U.S.C. '157(c)(2). [FN10]
On April 29, 1985, this court granted Dayton's motion to inter
vene and assert its claim in the interpleader action. Thereafter,
on June 12, 1985, pursuant to 28 U.S.C. '2361, the trustee was
discharged from any further liability to the parties arising out
of the interpleader fund, and the bankruptcy court retained
jurisdiction to determine the rights of the respective defend
ants.
On September 11, 1985, Galanis, Schwartz/Misco, Armstrong, and
Dayton stipulated to a partial settlement granting Schwartz/Misco
the right to receive $100,000.00 from the interpleader fund in
consideration for withdrawing all claims to that fund. In return,
Galanis withdrew his claim to any portion of the interpleader
fund claimed by Schwartz/Misco and agreed to the dismissal of his
breach of contract action. The parties also stipulated that if
Armstrong prevailed over Galanis in this interpleader action,
Armstrong would credit Galanis with an additional $120,00.00 on
any remaining amount Galanis owed Armstrong. At an October 23,
1985 status conference, the parties agreed that the conflicting
claims of Armstrong and Galanis should be tried first. This court
concurs, and with that objective in mind, vacates the ex parte
order of the district court pursuant to Chief Judge Daly's Febru
ary 19, 1985 authorization.
B.
Origin of Armstrong's Claim
In order to assess the validity of their competing claims, the
relationship between Armstrong and Galanis must be examined.
According to the "Explanatory Memorandum Relating to the Sale of
Shares of Common Stock of Armstrong Investors S.A.", [FN11] in
1969, Galanis and Akiyoshi Yamada ("Yamada") were instrumental in
the formation of two Panamanian Corporations, Armstrong and
Armstrong Investors, S.A. ("Investors"), as vehicles through
which individuals who were neither citizens nor residents of the
United States were able to invest in the securities markets in
this country. The voting stock of Armstrong was owned exclusively
by Investors. Individual investors received shares of Investors,
and the funds received for that stock were transferred to Arm
strong for investment. Neither Investors nor its shareholders had
a direct interest in Armstrong. First National City Trust (Baha
mas) ("FNCT"), a subsidiary of First National City Bank ("Citi
bank"), performed various domiciliary and general functions for
both corporations, and in addition, employees of FNCT served as
officers and directors of Armstrong and Investors.
The Delfino Action
On January 26, 1971, three Venezuelan shareholders in Investors
filed an amended civil complaint in the United States District
Court for the Southern District of New York, Delfino v. Armstrong
Investors S.A., et al, Index No. 70 Civ. 5242, seeking to recover
$13.5 million in damages for the alleged depletion of their
investment by the fraudulent, negligent and other tortious con
duct of Investors, Armstrong, Citibank, FNCT, various officers
and directors of those entities, Everest Management Corporation
(the investment manager for Armstrong) and its directors and
officers, namely Galanis, Yamada, and Louis Zachary. The com
plaint specifically alleged that "500,000 shares of United Assets
Group common stock were purchased for [Armstrong] by these de
fendants for a purchase price of $425,000." [FN12] Armstrong and
Investors were served and answered. Galanis was not served nor
did he appear in that action, which in May 1972, was settled and
dismissed with prejudice as to Armstrong, Investors, Citibank,
FNCT, and their officers and directors, and without prejudice as
to Galanis, Yamada, Zachary, and Everest Management Corporation.
Prior to reaching settlement with the Delfino plaintiffs, Citi
bank entered into settlement agreements with the non-litigating
shareholders of Investors. Under the terms of all of the settle
ment agreements, Citibank purchased all outstanding Investors
stock and was assigned the rights to all causes of action with
respect to that stock. The settlement agreements also provided
that Citibank would use its best efforts to pursue those rights
by itself or by a nominee. [FN13] Citibank retained the same
attorney who represented Armstrong to pursue those claims.
The Feiner Action
On April 2, 1975, Armstrong filed a second amended complaint
against Galanis, Yamada, and others, alleging fraud in connection
with the purchase and sale of 500,000 shares of United Assets
Group, Inc. common stock. [FN14] Galanis was served and answered.
Galanis's counsel was granted permission to withdraw on November
10, 1975. On March 1, 1976, several co-defendants, not including
Galanis, filed a motion to implead Citibank, Investors, and
others, as the real parties in interest. Judge MacMahon denied
that motion. The same parties filed an "Order to Show Cause and
Petition for Writ of Mandamus to Honorable Lloyd F. MacMahon" in
the Court of Appeals for the Second Circuit, which was similarly
denied. The case thereupon went to trial before a jury, and
Galanis appeared pro se. On July 27, 1976, Judge MacMahon direct
ed the entry of a verdict against Galanis stating that "[o]n the
basis of his own testimony, own admissions, and the other evi
dence received, he's admitted his embezzlement of the $425,000
from the plaintiff." [FN15] Judge McMahon thereupon entered a
judgment in the amount of $510,579.00 against Galanis and a joint
default judgment for the same amount plus costs against Yamada
and three other defendants. [FN16] Galanis did not appeal the
judgment or seek to have it amended or vacated. Yamada obtained a
release from Armstrong in 1977 in exchange for his agreement to
supply information and testimony with regard to pending litiga
tion to which Armstrong was a party. [FN17]
2.
DISCUSSION
The parties acknowledge that Galanis's right to claim entitlement
to the interpleader fund is derived from the November 9, 1984
dismissal of the involuntary petition, and Armstrong's right is
derived from its judgment against Galanis in the Feiner action.
Galanis disputes the validity of Armstrong's judgment on the
grounds that 1) Armstrong initiated the Feiner action as an
assignee of the rights and interests of others and not as the
real party in interest; 2) the assigned rights had previously
been fully satisfied in the Delfino action; and 3) Armstrong was
not entitled to use the Feiner action to seek contribution from
Galanis since they were joint tortfeasors in the Delfino case.
Furthermore, Galanis contends that notwithstanding the fact that
he did not seek a determination of Yamada's equitable share at
the Feiner trial, at the very least, this court should reduce
Armstrong's judgment against him to reflect Yamada's equitable
share pursuant to New York General Obligations Law '15-108 [FN18]
because Yamada and Galanis were equally culpable and Armstrong
released Yamada after judgment was entered. [FN19] In the alter
native, Galanis contends that Armstrong's attorney committed a
fraud upon the Feiner court which precludes enforcement of the
judgment rendered in that action. Armstrong on the other hand,
asserts that it instituted the Feiner action on its own behalf
and not as the nominee of Citibank, but nonetheless argues that
the claims raised by Galanis are barred by the doctrine of res
judicata and denies that there was any fraud upon the Feiner
court.
Res Judicata
It is well settled that when a court of competent jurisdiction
enters a final judgment based on the merits of a cause of action,
res judicata prevents parties and their privies from litigating
claims which were, or could have been, raised in that action.
Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 719, 92
L.Ed. 898 (1948); Cromwell v. County of Sac, 94 U.S. (4 Otto)
351, 352, 24 L.Ed. 195 (1876). Res judicata precludes litigation
in a subsequent suit of all grounds and defenses that were avail
able to the parties, whether or not they were actually asserted
or adjudicated in the earlier proceeding. Brown v. Felsen, 442
U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1978); Angel
v. Bullington, 330 U.S. 183, 193, 67 S.Ct. 657, 662, 91 L.Ed. 832
(1947); Chicot County Drainage Dist. v. Baxter State Bank, 308
U.S. 371, 378, 60 S.Ct. 317, 320, 84 L.Ed. 329 (1940), NLRB v.
United Technologies Corp., 706 F.2d 1254, 1259 (2d Cir.1983).
"Public policy dictates that there should be an end of litiga
tion; that those who have contested an issue shall be bound by
the result of that contest, and that matters once tried shall be
considered forever settled as between the parties." Baldwin v.
Iowa State Traveling Men's Ass'n, 283 U.S. 522, 525, 51 S.Ct.
517, 517-18, 75 L.Ed. 1244 (1931).
Under the Federal Rules of Civil Procedure, the claims Galanis
raises regarding the identity of the real party in interest,
should have been asserted in the original action. Rule 9(a),
F.R.Civ.P. provides in relevant part that:
[w]hen a party desires to raise an issue as to the legal exist
ence of any party or the capacity of any party to sue or be sued
or the authority of a party to sue or be sued in a representative
capacity, he shall do so by specific negative averment, which
shall include such supporting particulars as are peculiarly
within the pleader's knowledge. Similarly his failure to plead
satisfaction, contribution and the determination of equitable
shares should have been raised in the trial court. [FN20] Rule
8(c), F.R.Civ.P. provides, in pertinent part that:
[i]n pleading to a preceding pleading, a party shall set forth
affirmatively accord and satisfaction, ... payment, release, and
any other matter constituting an avoidance or affirmative de
fense.
Galanis's failure to raise those defenses results in their waiv
er. See In re Fine Paper Litigation State of Washington, 632 F.2d
1081, 1090 (3rd Cir.1980) (prior judgment must be invoked as
affirmative defense); Audrieth v. Parsons Sanitarium, Inc., 588
F.Supp. 1380, 1381 (S.D.N.Y.1984) (failure to raise the issue of
equitable shares as an affirmative defense constitutes a waiver
of the right to relief based on those equitable shares); Marx &
Co., Inc. v. Diner's Club, Inc., 400 F.Supp. 581, 585
(S.D.N.Y.1975) (accord precluding plaintiffs from raising claims
must be affirmatively pleaded and may not be asserted following
trial); 2A Moore's Federal Practice P 9.02 (2d ed. 1986). Moreo
ver, Galanis's reliance on New York General Obligations Law, '15-
108 [FN21] is misplaced, since that law is not applicable to
post-judgment settlements where equitable shares have not been
previously established by the trial court. See Rock v. Reed-
Prentice Div., 39 N.Y.2d 34, 41, 382 N.Y.S.2d 720, 723, 346
N.E.2d 520, 523-24 (1976); Cover v. Cohen, 113 A.D.2d 502, 497
N.Y.S.2d 382, 388 (2d Dept. 1985). Accordingly I find that the
claims raised by Galanis in his attack on the Feiner judgment are
barred by res judicata.
Fraud Upon The Court
As noted, Galanis alternatively claims that there was a fraud
upon the Feiner court which provides grounds upon which this
court may exercise its equitable powers to bar enforcement of the
judgment obtained in that proceeding. Rule 60(b) of the Federal
Rules of Civil Procedure establishes grounds upon which a court
may grant relief from judgment and specifically preserves a
court's inherent right to refrain from enforcing a judgment
obtained through fraud upon a court. 7 Moore's Federal Practice P
60.33 at 60-351 (2d ed. 1985). The saving clause in Rule 60(b)
states that:
[t]his rule does not limit the power of a court to entertain an
independent action to relieve a party from a judgment ... or to
set aside a judgment for fraud upon the court.
Proper application of the rule effectively serves the ends of
justice while retaining the integrity of the finality of judg
ments. House v. Secretary of Health & Human Services, 688 F.2d 7,
9 (2d Cir.1982); Bankers Mortgage Co. v. United States, 423 F.2d
73, 79 (5th Cir.) cert. denied, 399 U.S. 927, 90 S.Ct. 2242, 26
L.Ed.2d 793 (1970).
The Court of Appeals for the Second Circuit has stated that the
meaning of "fraud upon the court"
has not been much elucidated by decisions. Obviously it cannot be
read to embrace any conduct of an adverse party of which the
court disapproves; to do so would render meaningless the one year
limitation on motions under F.R.Civ.P. 60(b)(3). See 7 Moore,
Federal Practice P 60.33 at 511 (1971 ed.). Professor Moore
submits that the concept should "embrace only that species of
fraud which does or attempts to, defile the court itself, or is a
fraud perpetrated by officers of the court so that the judicial
machinery cannot perform in the usual manner its impartial task
of adjudging cases that are presented for adjudication." Id. at
515 (footnote omitted).
Kupferman v. Consolidated Research & Mfg. Corp., 459 F.2d 1072,
1078 (2d Cir.1972). See also Travelers Indemnity Co. v. Gore, 761
F.2d 1549, 1551 (11th Cir.1985).
Generally a finding of fraud on the court will be supported only
by evidence of "the most egregious misconduct, such as bribery of
a judge or members of a jury, or the fabrication of evidence by a
party in which an attorney is implicated." United States v. Int'l
Telephone & Telegraph Corp., 349 F.Supp. 22, 29 (D.Conn.1972),
aff'd mem. sub nom. Nader v. United States, 410 U.S. 919, 93
S.Ct. 1363, 35 L.Ed.2d 582 (1973), citing Hazel-Atlas Glass Co.
v. Hartford Empire Co., 322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250
(1944). See also Bulloch v. United States, 763 F.2d 1115, 1121
(10th Cir.1985) cert. denied, --- U.S. ----, 106 S.Ct. 862, 88
L.Ed.2d 901 (1986); Pfizer, Inc. v. Int'l Rectifier Corp., 538
F.2d 180, 195 (8th Cir.1976), cert. denied 429 U.S. 1040, 97
S.Ct. 738, 50 L.Ed.2d 751 (1977). It is well established that the
failure to disclose allegedly pertinent facts relating to a
controversy before the court, whether to an adverse party or to
the court, does not constitute "fraud upon the court" for purpos
es of setting aside a judgment pursuant to F.R.Civ.P. 60(b).
Kerwit Medical Products, Inc. v. N. & H. Instruments, Inc., 616
F.2d 833, 837 (5th Cir.1980) citing H.K. Porter Co., Inc. v.
Goodyear Tire & Rubber Co., 536 F.2d 1115 (6th Cir.1976); Kupfer
man, supra, 459 F.2d at 1081; United States v. Int'l Telephone &
Telegraph Corp., supra, 349 F.Supp. at 29. See also Rozier v.
Ford Motor Co., 573 F.2d 1332, 1338 (5th Cir.1978); 11 Wright &
Miller, Federal Practice & Procedure: Civil '2870, p. 254 (1973).
Thus, where appropriate circumstances exist, an independent
action may be maintained to provide relief from a judgment ob
tained through deliberate subversion of the judicial process
which compromised the ability of the defendant to present his
claim.
Galanis argues that Armstrong's counsel submitted two affidavits
in 1976 to the Court in the Feiner action which affirmatively
misled that court. In the first, James McIntyre, Esq., stated
that in the [Delfino ] settlement agreement between Citibank and
the investors, Citibank agreed "to prosecute the corporation's
claims for fraud in the corporate name." (Arm Ex. K at 9)(empha
sis in original). He further specifically stated
The instant action is duly and properly brought in the corporate
name, by a legitimate corporation, [Armstrong], in its own name,
in its own right, and for its own benefit.
Id. at n. 2 (emphasis in original). In the second affidavit, Mr.
McIntrye unequivocally stated that $510,770.84 was "justly due
and owing to the plaintiff, no part of which has been paid...."
(JPG Ex. 20) [Armstrong's] counsel at no time informed the Feiner
court as to the true terms of the full settlement agreements or
that [Armstrong] was litigating as Citibank's nominee and as
assignee of the rights of the investors. [FN22]
Although Galanis would have this court believe that Armstrong
concealed the Delfino settlements and other evidence from him,
his co-defendants, and the Feiner court, a careful examination of
the record in the Feiner action reveals that that evidence was
available at the time of the Feiner action and in fact was pre
sented to the court by Armstrong's adversaries. The affidavit
supporting their March 1, 1976 motion to implead Citibank and
Investors, filed by several of Galanis's co-defendants, recited
the facts of the Delfino action and settlements. [FN23] Further
more, prior to the March 19, 1976 deposition of a Citibank offi
cial, a copy of one of the settlements was produced for the
defendants, and Werner Polak, Esq., counsel for Citibank, testi
fied that he informed the defendants that that sample agreement
was not the only settlement agreement, but that all shareholders
of Investors had executed virtually identical agreements. [FN24]
Indeed, in their March 23, 1976 "Order to Show Cause and Petition
for Writ of Mandamus to Honorable Lloyd F. MacMahon", the same
co-defendants who had filed the March 1, 1976 motion, specifical
ly outlined the facts of the Delfino settlements and charged
that, Citibank was the real party in interest [FN25] and that
claims for contribution might exist. [FN26] Moreover, Galanis's
name and address appeared on the master service list for the
Feiner action giving him access to the information and documents
available to his co-defendants.
It is therefore apparent that when Judge MacMahon entered judg
ment in the Feiner case, he was aware of the allegations that
Armstrong was not the real party in interest but rather was
pursuing claims assigned to Citibank by the shareholders of
Investors which had been satisfied. It is also apparent that
Armstrong and its counsel did not inhibit their adversaries from
effectively pursuing their claims. Thus, while it is clear that
Galanis's claims, if proven, would not rise to the level of fraud
upon the court, see Kerwit, supra, 616 F.2d at 837; Kupferman,
supra, 459 F.2d at 1078, here it is also obvious that those
claims are invalid. Accordingly, I find there was no fraud upon
the court.
Conclusion
For the foregoing reasons, there is no basis for this court to
disturb the Feiner judgment. The registration of that judgment in
Connecticut and execution upon the trustee as stakeholder of
Galanis's personal property created a lien on the interpleader
fund in favor of Armstrong. It is therefore determined that
Armstrong is entitled to the interpleader fund subject to
Schwartz/Misco's right to the $100,000.00 as provided by the
September 11, 1985 stipulation [FN27] and the future determina
tion of Dayton's right.
FN1. In re Galanis, Chapter 7, Case No. 5-80-00302, Adv. No. 2-
80-0417 (Bankr.D.Conn.).
FN2. The office of the bankruptcy judge at Bridgeport, Connecti
cut was vacant at the time the trustee's complaint was filed.
Therefore, the United States Bankruptcy Court at Hartford, Con
necticut heard this matter.
FN3. 11 U.S.C. '303(j)(3) provides in pertinent part that (j)
Only after notice to all creditors and a hearing may the court
dismiss a petition filed under this section--(3) for want of
prosecution.
FN4. It is clear from the subsequent conduct of the parties, as
discussed infra, that Schwartz/Misco's interest was not to be
included in the assets ordered revested in Galanis.
FN5. Armstrong's execution was personally served on Galanis on
December 17, 1984.
FN6. Under 28 U.S.C. '1963, a certified copy of a judgment en
tered by a United States District Court which has become final by
appeal or expiration of time for appeal may be filed in any other
district court. Upon registration, the judgment has the same
effect as a judgment entered by the district court in which it is
registered.
FN7. Conn.Gen.Stat. '52-356a(a)(4)(C)(1985) provides that: [w]ith
respect to a judgment debtor who is a natural person, if such
personal property, including any debt owed, is in the possession
of a third person, the levying officer shall serve that person
with two copies of the execution, required notices and claim
forms. On receipt of such papers, the third person shall forth
with mail a copy thereof postage prepaid to the judgment debtor
at the last-known address of record with the third person and
shall withhold delivery of the property or payment of the debt
due to the levying officer or any other person for twenty days.
On expiration of the twenty days, the third person shall forth
with deliver the property or pay the debt to the levying officer
provided (i) if an exemption claim has been filed in accordance
with subsection (d) of section 52-361b, the property shall con
tinue to be withheld subject to determination of the claim and
(ii) if a debt is not yet payable, payment shall be made when the
debt matures if within four months after issuance of the execu
tion.
FN8. Conn.Pub. Act 83-541 Sec. 10 provided that: (a) If an execu
tion is issued, the judgment creditor may apply to the court for
an ex parte order in aid of the execution directing the judgment
debtor, or any third person, to transfer to the levying officer
either or both of the following: (1) Possession of specified
personal property that is sought to be levied on; or (2) posses
sion of documentary evidence of title to property of, or a debt
owed to, the judgment debtor that is sought to be levied on. (b)
The court may issue a turnover order pursuant to this section on
a showing of need for the order. (c) The order shall be personal
ly served and shall contain a notice that failure to comply
therewith may subject the person served to being held in contempt
of court. (Codified as amended at Conn.Gen.Stat., '52-356b(1985).
FN9. The trustee and Galanis also filed motions to vacate this ex
parte order.
FN10. 28 U.S.C. '157(c)(2) provides in pertinent part that: the
district court, with the consent of all the parties to the pro
ceeding, may refer a proceeding related to a case under title 11
to a bankruptcy judge to hear and determine and to enter appro
priate orders and judgments, subject to review under section 158
of this title.
FN11. Galanis Exhibit 1.
FN12. Galanis Exhibit 5 at P 20(d).
FN13. Galanis Exhibit 2.
FN14. Galanis Exhibit 9.
FN15. Armstrong Exhibit Q, sub-ex E.
FN16. Armstrong Exhibit A-1.
FN17. Galanis Exhibits 23 and 24.
FN18. See footnote 22 infra.
FN19. Galanis's Substituted Answer and Statement of Claim P 34;
Post-Trial Brief at p. 28.
FN20. See p. 961 infra, for a discussion of the availability of
evidence to Galanis to support these claims and defenses.
FN21. N.Y.Gen.Oblig.Law '15-108 (McKinney 1984) provides in
pertinent part that a release of one tortfeasor releases joint
tortfeasors: to the extent of any amount stipulated by the re
lease or the covenant, or in the amount of the consideration paid
for it, or in the amount of the released tortfeasor's equitable
share of the damages under article fourteen of the civil practice
law and rules, whichever is the greatest.
FN22. Galanis Pretrial Memorandum at 17.
FN23. Armstrong Exhibit L Appendix.
FN24. Transcript I at 62, 67, 68.
FN25. Armstrong Exhibit L at P 8.
FN26. Id. at P 10.
FN27. See p. 957 supra.
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johnklotz@johnklotz.com.